It's a Team's Life

Income Tax SHOCK

Each year my goal is to get our information to our accountant as soon as possible so that if there is money owed I have time to prepare. This habit came about from our earliest day of marriage and living from paycheck to paycheck with zero savings. So even though the amount due was unexpected I was prepared.

In this past year our income increased and I also took some money out of a long-term investment to pay off a debt. We had to pay capital gains on the investment and then with our income increasing; the IRS wants their fair share.

So our accountant informed me of how much we were going to owe in taxes and then came the kicker... Next year at your current rate of income, not having depreciation on this truck and everything else stays about the same you will own a large sum to state and federal taxes. So my first thought was panic and then common sense kicked in.

He had a couple of suggestions; buy another truck, add more money to our HSA, pay higher quarterly taxes, buy items that are deductions, or bite the bullet and pay the taxes. Thoughts started going through my head at a million miles an hour as I reviewed several scenarios and buying something that is not needed to save on taxes make zero sense to me.

We do not buy stuff to get a tax deduction as it is not a case of spend $1000 and get a $1000 tax deduction. First you have to figure out what tax bracket you are in. In the example is 25% and this will get you close as you would also need to calculate payroll taxes as well as your state taxes.

25% Federal income
15.3% Payroll Tax
6% State Tax

So the $1000 spent will save you about $433 in taxes. If the item is needed it is worth it, if the item is bought for a tax deduction it does not pay off in the long run. In our situation knowing this tax bill is looming we will consider some purchases that will be for our business that we might have put off.

After much contemplation the decision was reached to pay minimum safe harbor quarterly payments, not buy a new truck or any stuff not needed, to fully fund our retirement, and put a set amount of money back each month to pay our end of year taxes. During the year the money that will be owed will be invested till needed.

Bob & Linda Caffee
TeamCaffee
Saint Louis MO
Expediters since January 2005
[email protected]

Expediting isn't just trucking, it's a lifestyle;
Expediting isn't just a lifestyle, it's an adventure;
Expediting isn't just an adventure, it's a job;
Expediting isn't just a job, it's a business.